﻿Apple Inc.
last year said it would invest $700 million to build the world’s biggest artificial-sapphire factory. On Monday, the company running that factory—
GT Advanced Technologies Inc.
—filed for bankruptcy protection.

The bankruptcy filing comes less than a month after Apple unveiled new iPhones with glass screens, rather than sapphire. Apple’s decision not to use sapphire followed tests in which the synthetic sapphire proved brittle, cracking when phones were dropped from various heights and angles, according to people familiar with the matter.

The final straw for GT appears to be Apple withholding a $139 million payment, according to people familiar with the matter. That was to be the last of four prepayments from Apple to GT totaling $578 million. In August, GT had said that it expected the last payment to arrive by the end of October—contingent on meeting certain operational targets at the plant in Mesa, Ariz.

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“The company appears to have bitten off more than it can chew in regards to the relationship with Apple, which we believe is the culprit here,” Cowen and Co. analyst
Jeffrey Osborne
wrote in a note to clients.

It also casts doubt on Apple’s bet on sapphire, and on GT. When Apple announced the deal last November, the tech giant said it would create more than 2,000 jobs and move an important part of its supply chain to the U.S.

Sapphire was seen as a potential solution to a big problem for iPhones and other smartphones—broken or scratched screens. Apple already uses sapphire from other manufacturers to cover the iPhone’s camera lens and fingerprint reader.

As recently as a few months ago, Apple engineers were testing iPhone prototypes with a sapphire screen cover, according to the people familiar with the matter. By using sapphire as an alternative to hardened glass, Apple was hoping for a more scratch- and shatter-resistant cover for its flagship smartphones, they said.

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In the end, Apple decided to scrap the sapphire screens for the iPhone 6 and iPhone 6 Plus and stick with
Corning Inc.’s
GLW -2.07%
heavy-duty Gorilla Glass.

The Wall Street Journal reported in August that Apple was considering using sapphire screens for some iPhones.

Two of the three models of Apple’s new smartwatch will be covered by sapphire. A person familiar with Apple’s plans said GT’s bankruptcy won’t affect those plans.

Eric Virey, a senior analyst at French research firm Yole Développement, said the size and scope of the Arizona plant suggests Apple had planned to use the sapphire screens for more than the watch. At full capacity, he estimated the plant would produce twice as much sapphire as the current output from nearly 100 manufacturers world-wide. “For me, there is absolutely no doubt that it was for the smartphone,” he said.

Mr. Virey said GT struggled with low manufacturing efficiency and that other suppliers struggled to work with “finishing” the sapphire to be smooth and blemish free.

“Today’s filing does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet,” GT Advanced Chief Executive
Tom Gutierrez
said in a news release.

A GT spokesman wasn’t available for additional comment. A message on his answering machine pointed to the company’s bankruptcy filings.

In its filings, GT said it had about $85 million in cash as of Sept. 29, and it is now seeking debtor-in-possession financing.

The company expects that it will receive court authorization to conduct business as usual during the reorganization effort.

In a petition filed with U.S. Bankruptcy Court in New Hampshire, GT and its affiliates reported $1.5 billion in assets and liabilities totaling approximately $1.3 billion. In filings, GT listed Apple among hundreds of its creditors.

Mr. Gutierrez and another senior executive sold GT shares on Sept. 8, a day before Apple announced the new phone will use a glass screen. Mr. Gutierrez sold 9,232 shares of previously restricted stock that vested that day, at roughly $17.38 a share; according to a filing, the sale was part of a pre-arranged selling program. Monday, GT shares closed at 80 cents.

Apple last year bought the 1.4-million-square-foot Arizona facility—about the size of two dozen football fields—from a solar-panel producer for $113 million and leased it to GT, a leading maker of furnaces used to produce sapphire.

It agreed to a series of prepayments to outfit the factory with cutting-edge furnaces. As part of the agreement, GT would start repaying Apple in 2015.

For GT, it was a huge gamble. Up until its partnership with Apple, the company had only produced the furnaces to grow synthetic sapphire. It wasn't a manufacturer of sapphire itself.

For small suppliers, working with Apple can be a double-edged sword. As one of the world’s biggest manufacturers, an order from Apple can be huge and, unlike other big firms, it pays suppliers promptly, according to people who have worked with the company. It can also help elevate a supplier’s standing, because of Apple’s reputation to only work with firms that can meet its tough demands and exacting standards.

However, suppliers often need to expand production rapidly to meet demand created by the millions of Apple devices—a decision that can backfire if something goes awry.